Headlines – Week of July 10, 2011

July 19, 2011

Top 10 Housing Markets for Investors

HomeVestors of America, Inc., known as the “We Buy Ugly Houses®” company, and Local Market Monitor, a leading forecaster of real estate markets, recently unveiled the “HomeVestors-Local Market Monitor Best Markets to Invest in Rental Property” ranking.

According to the report, Rochester, N.Y., and the Florida cities of Fort Lauderdale, Orlando and Tampa are ranked in the top 10 best housing markets for investors in rental property,. The winners are generally in markets where home prices have fallen substantially, including Las Vegas, Detroit, Tampa and Phoenix.

Las Vegas, where home prices are down by more than 50 percent from their market peak, topped the list, offering the best returns on homes maintained as rental properties. The report main consideration was potential home price appreciation and gross rents.

Predominantly a retirement market, home prices fell 10 percent in Tampa in the last 12 months due to over-supply of investment properties built during the boom.

Although extra risks in the top markets, home prices are below-average, so empty homes are easily turned into competitive rental properties.

HomeVestors and Local Market Monitor estimate that approximately 14% of single-family homes in the U.S. are maintained as rental properties.

The HomeVestors ranking forecasts the expected performance of rental real estate properties, specifically single-family homes maintained as rental properties. The rankings show the extra return, or risk-return premium, that an investor must demand from rental property in a local market. The risk-return premium can be added to the regular capitalization rate to produce a risk-adjusted cap rate at full occupancy for a local market.

The ranking is calculated based on three-year forecasts of home prices (reflecting underlying home-price appreciation potential) and gross rents (as a proxy for potential investor cash flow).

The Top 10 markets in the new ranking are:

Las Vegas, Nevada

Detroit, Michigan

Warren, Michigan

Orlando, Florida

Bakersfield, California

Tampa-St. Petersburg, Florida

Phoenix, Arizona

Ft. Lauderdale, Florida

Rochester, New York

Stockton, California

Current rental vacancy rates are 12 percent in Las Vegas, 19 percent in Detroit, 9 percent in Tampa, and 13 percent in Phoenix.

Las Vegas – Jobs are still being lost and home prices are down 45 percent since the peak in 2006. Rents have dropped 10 percent. Much of the large workforce in the casino industry consists of renters; the homeownership rate is a low 55 percent. The current unemployment rate is 12 percent.

Detroit – Although the recession bottomed out a year ago, the unemployment rate is still high at 11 percent. The population shrank 4 percent since 2006.

Tampa – Largely a retirement market, home prices fell 10 percent in the last year due to the over-supply of investment properties built during the boom. Jobs are growing again in the service industries. Homeownership dropped a sharp 5 percent since 2007.

Phoenix – Jobs are growing again after a very deep recession. Home prices dropped 40 percent since 2006, with rents decreasing just 8 percent. Population growth since 2006 is a strong 8 percent.

6 Best Places for Business, Careers

According to Forbes’ 13th annual Best Places of Business list, eighty percent of the top 25 regions on Forbes’ list this year are from the center of the United States.

According to CBRE Econometric Advisors (CBRE-EA), the national office vacancy rate continued to decline in the second quarter of 2011, dropping 20 basis points to 16.2%. This was the fourth consecutive quarterly decline for the national office vacancy rate since it peaked at 16.8%.

The national industrial availability rate dropped 10 basis points to 13.9% in the second quarter, reports CBRE-EA. This marks the fourth consecutive quarterly decline in industrial availability.

However, there was more bad news on the retail front. The availability rate for retail in the second quarter rose to 13.3%, 10 basis points higher than in the first quarter.

U.S. apartment demand continues to expand at a steady pace. In the second quarter, the vacancy rate for the CBRE-EA nationwide sample of 4.2 million professionally managed apartment units declined to 5.4% in the second quarter, moving the four-quarter trailing average down 20 basis points.

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